Standards rising, profits are up, but Northern Ireland Water still has unfinished business
Profits are up £43m for Northern Ireland Water in 2013-14 If private households were asked to pay water charges, the average annual bill would be just over £400. Since the equivalent of household water charges is from the Stormont budget, it effectively comes out of the block grant available from the Treasury.
In the year to March 2014, this consumer subsidy was a charge of £277m on the budget of the Department of Regional Development. Interestingly, as a consequence of improving finances at Northern Ireland Water, the necessary consumer subsidy fell by £4m compared to the previous year.
NIW has published its report and accounts for 2013-14. The accounts are complex. Firstly, in statutory format, NIW is treated in Government accounts as a Non-Departmental Public Body. Then in a parallel second presentation it is re-presented in regulatory format. Using the audited figures but reclassifying some critical topics, including the way consumers contributions to assets are treated, the annual report shows two different figures for current revenue and profits.
The statutory accounts show NIW current revenue as £433m. Post-tax profit of £153m was up £43m on last year. A dividend of £29m was paid to the owner, the Department.
The regulatory accounts show NIW turnover as £367m and post-tax profits of £71m (lower in large part by the exclusion of revenue from customers contributions to the connections costs which are reflected in the capital accounts). Post-tax profits were up £30m. The dividend payment, not surprisingly, is the same in both presentations.
The accounting presentation differences have a logic in the complex management arrangements for NIW. The differing figures should not deflect attention from the underlying fundamentals of the improving performance of this Go-Co organisation. There is an unfinished piece of business in the organisation of NIW. It is regulated and monitored by the utility regulator using performance indicators akin to those applied in the comparable private sector companies in GB. It is accountable as a public sector subsidiary. In theory this leaves a dual supervision where a single process might be adequate.
As a regulated utility, NIW has been set demanding performance yardsticks covering economic, financial, environmental and social measurements. NIW produces extensive evidence of, in general, good progress. In a wide ranging list of indicators, the regulator has set a target of improving customer operating performance against a standard used in England and Wales. NIW has some way to go, but in 2013 had reached 75% of the average from a much lower position seven years earlier.
For the future, out of over 30 performance indicators, NIW acknowledges six where it failed to meet target performance. Most of these are modest internal standards. However, despite some improvements in reducing the risk arising from flooding of sewers, this remains a concern. There were 55 sewer flooding incidents in 2013-14 which was the highest number of recent years.
Critically, water quality assessments have continued to improve and the number of pollution incidents have been decreasing.
Some of the evidence offers corroborative support for the continuing high level of annual capital spending. Leakages of clean water from the current systems are still a concern: in 2013-14, every day 167m litres were lost through leakage.
The annual capital spending budget remains at over £160m to improve the delivery of clean water and to cope with the disposal of waste water.
In terms of the call on official Government finance, NIW has delivered an annual £7m reduction in operating costs which, in turn, has allowed a reduction in the consumer subsidy. The other large call on public funds is the financing of the capital programme. With the retention of profits after dividend and taxes, combined with some PPP financing, NIW has only needed to borrow an extra £29m from official sources in 2013-14.
NIW is something of a hybrid organisation. Should a Go-Co also be a regulated entity? Probably, no! But, if it isn’t broke, why fix it?